KEY POINTS
- THESIS REHASH: The street is just asking too much of SNAP, confusing what it has accomplished with its runway. We estimate that SNAP has already captured the lion’s share of the younger demos in North America/Europe, so incremental penetration will be tougher to come by given technological hurdles internationally, and a much-older remaining TAM. That also means that the longer-term revenue story is in question since the monetization gap between SNAP and FB isn’t as nearly wide as the ARPU metrics suggest. Further, consensus is overshooting the one positive in the story (revenue growth); their estimates are largely based off of dated sound bites, especially considering SNAP's emerging inventory and demand constraints.
- THOUGHTS INTO THE PRINT: We still see 2H17 revenue estimates as too high (particularly 3Q17), even after consensus slashed estimates over the last two prints. We know that seasonality matters for SNAP, so we have to consider what that means for 3Q17. First, the level of sequential growth that street is expecting for SNAP is above anything TWTR had achieved in the comparable quarter until it was producing ~2.5x more revenue than SNAP. Second, the street is expecting greater q/q Ad revenue growth for SNAP in 3Q than it achieved in 2Q ($ terms); something that FB has never done in its reported history and TWTR has only achieved three times: twice before typical seasonality emerged in its model, once after its results starting degrading in excess of seasonal trends.
SNAP | Best Idea Short (Deck & Replay)
6/16/2017
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See the above deck for supporting detail. Let us know if you have any questions or would like to discuss further.
